Issuer officials who said Treasury's final issue price rules are a vast improvement over earlier proposals nevertheless raised concern that they might discourage competitive sales of bonds or create problems for issuers if underwriters run afoul of the rules.

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SAN FRANCISCO - California plans to sell $4 billion of tax-exempt general obligation bonds next week, and is strongly considering a taxable Build America Bonds deal next month, Treasurer Bill Lockyer said Friday.

It would be California's first GO sale since June, and the largest long-term municipal bond deal since October 2007, when Ohio's Buckeye Tobacco Settlement Financing Authority sold $5.53 billion.

"It's great to get back in the game," Lockyer said in a statement. "It's been too long, and we think investors agree. The market is ready for a California comeback."

Merrill Lynch & Co. and Citi are joint senior managers. The deal is to price March 25, after a two-day retail order period.

Lockyer said his office's Buy California Bonds retail marketing campaign will be extended out of state for the first time, with print and radio ads in New York City.

California officials stayed out of the long-term bond market for nine months as lawmakers wrangled over a $40 billion deficit in the state general fund and an associated cash crisis.

That delay, combined with the state's tight liquidity position, led to the freezing of thousands of bond-financed infrastructure projects in December.

The state is also exploring the use of taxable Build America Bonds for a large GO sale in late April, Lockyer said.

Treasurer's spokesman Tom Dresslar said the office is working with Goldman, Sachs & Co. and JPMorgan to explore the potential of BABs, which were created in the recent federal stimulus package and allow the state to issue taxable bonds and either receive a federal tax subsidy or offer investors a tax credit.

If California uses the program, it likely would elect the cash subsidy, Lockyer said.

Lockyer's announcement Friday came after a grim budget forecast earlier that day from the state's independent Legislative Analyst's Office.

Despite the agonizing process California went through earlier this year to pass a budget to close a $40 billion budget shortfall, the state can expect another $8 billion hole to fill, the LAO warned.

Lawmakers approved spending cuts, tax increases, and borrowing to deal with the huge budget shortfall through fiscal 2010 - an effort that the LAO described Friday as "an impressive step in addressing the state's monumental budget shortfall."

But it won't be enough, according to the LAO.

"Even in the few weeks since the budget was signed, there have been a series of negative developments," it warned Friday in its analysis of the budget act. "Our updated revenue forecast projects that revenues will fall short of the assumptions in the budget package by $8 billion. Consequently, the Legislature and governor will need to adopt billions of dollars in additional solutions in the coming months to bring the 2009-10 budget back into balance."

The projections only get worse looking further down the road.

The LAO's forecast, which assumes that voters will approve several ballot measures in a special May election, projects a $12.6 billion general fund shortfall in fiscal 2011, rising to $26 billion in fiscal 2014.

In its annual debt affordability report in October, the treasurer's office projected that California would issue $11 billion of GOs during fiscal 2009. Next week's $4 billion issue would be its first of the almost nine-month-old fiscal year.

Even the proceeds of that giant deal may not bring a complete end to the state's infrastructure spending freeze, Lockyer said Friday.

He said the state's Pooled Money Investment Account, which usually funds projects until bonds are issued as reimbursement, has about $6 billion in outstanding unreimbursed infrastructure loans.

The Pooled Money Investment Board will meet Wednesday to discuss the freeze.